The William Warren Group (WWG), a privately held real estate company that operates the StorQuest Self Storage brand, is seeking to convert a former Los Angeles taco shop into a four-story storage facility. The property at 2803 W. Broadway, which once housed Ernie Jr.’s Taco House, has been vacant for nearly four years, according to the source.

The plans include construction of a nearly 85,000-square-foot building, with glass walls overlooking El Verano Avenue and West Broadway. In its application, WWG requested permission to build the site taller and higher than normally allowed by the city, and to provide 14 parking spots instead of the required 38.

The company is also seeking an exemption from design and other development guidelines for the area. To justify its request, the developer noted the community needs more storage following the state’s efforts to legalize garage and accessory-building conversions into living spaces. “Therefore, self-storage facilities located in close vicinity to densely populated communities/neighborhoods serve a much-needed service for residents themselves,” the application stated.

The Eagle Rock Neighborhood Council’s land-use committee has recommended opposing the current proposal. The council would like to see the project follow the existing development guidelines, the source stated.

The Eagle Rock Association, a neighborhood group, has yet to take a position on the project, but plans to meet with developer this week, according to Greg Merideth, association president. Residents surveyed by the association in 2015 stated they’d support the effort. “At that time, the vast majority of them favored the storage facility because it would likely generate less noise, traffic and parking issues,” Merideth said.

Founded in 1994 and based in Santa Monica, Calif., WWG acquires, develops and operates 128 self-storage facilities in Arizona, California, Colorado, Florida, Hawaii, South Carolina and Texas.

Despite high property prices, new self-storage projects continue to spring up across Australia. The entrepreneurial spirit is high “down under,” with many established operators adding new locations, and small and new investors entering the sector.

The investment metrics for new projects are increasingly marginal, but the lack of alternative opportunities and the continuing capitalization-rate compression are still justifying new development—for now. Is overbuilding imminent in this well-established market? Let’s look at local operating performance and other factors.

Mixed Results for the REITS

There are two real estate investment trusts (REITs) with assets in Australia and New Zealand. National Storage REIT (NSR) is a pure self-storage REIT, while Abacus Property Group is a diversified REIT with self-storage as one of its significant investment sectors. They both reported end-of-year finances on June 30, which is when the fiscal year ends in Australia.

NSR has seen an increase in occupancy in Australian locations to 77 percent, and an increase in revenue per available metre (REVPAM) by 5 percent. The company’s same-store results in New Zealand have experienced an occupancy reduction from 76.3 percent to 71.8 percent in the past 12 months, while REVPAM is stable.

NSR continued its acquisitive ways, completing $138 million in purchases between July 2017 and June 2018, as well as a $285 million buyout of Heitman LLC's 90 percent interest in the Southern Cross Storage Group joint venture. That transaction set a new benchmark for capitalization (cap) rates in the Australasian self-storage industry, with a passing yield of 5.8 percent. The portfolio consisted of 26 established and stable storage facilities, trading at occupancy of 74 percent.

Acquisitions have led NSR’s total asset value to grow to $1.1 billion. Its annual report also reveals an improvement in cap rates from its annual valuation update, with those rates down .38 percent to 7.86 percent.

Abacus owns $629 million in self-storage assets. Its recent reports have shown an occupancy increase to 89.2 percent and a REVPAM increase to 2.2 percent. The company added three new storage sites to its portfolio, taking it to 62 overall. It now has 302,000 square meters of net leasable area. Abacus storage valuations have also seen a reduction in cap rates, down .3 percent to 7.7 percent. The firm also indicates an appetite to grow through acquisition and new development.

Prices and Occupancy Flatten

The Australian consumer has been under cost-of-living pressure with rising energy prices, housing and many other increases. This appears to be biting many retail sectors, which see lower spending and report suboptimum performance.

Urbis, an Australian firm that advises property developers, owners, investors and others, has been tracking self-storage prices and occupancy since 2008, and publishes the “Urbis Storage Index” twice per year. The December 2016 report revealed some softening in occupancy and prices in Australia. In contrast, Auckland, New Zealand, continues with strength. The report states:

Results for the 12 months to December 2016 reveal a continued downward trend in area occupied for East Coast Australia facilities. The decline of 1.13 percentage points supports the Urbis view that occupancy expectations have “topped out.” Average occupancy at the end of the year for sample facilities for the East Coast of Australia was 86.71 percent.

Total facilities monitored in Australia and New Zealand average storage fee rates for all East Coast Australia facilities continued to enjoy moderate growth over the year, recorded at 2.3 percent. Average storage fee rate growth continues to track above consumer price index, which was 1.5 percent for the same period.

Auckland remains the standout performer in terms of storage fee rate growth for the year, recording a 6.15 percent increase. The Melbourne Outer Zone experienced the second largest increase at 3.69 percent for the same period.

Does Overbuilding Loom?

With 26 years of almost uninterrupted economic growth in Australia, the memory of recession has long faded for many, and there’s an entire generation of adults that haven’t even experienced one. Some observers worry this is lending a false sense of security and infallibility to peoples’ investment decisions.

Asset prices are booming. There’s strong appetite for property assets of all kinds, and self-storage is getting much interest, including new development. Despite the mixed economic signals, there’s noticeable increase in building in Australia and New Zealand. Existing owners and new entrants are jumping in to develop new sites and accepting lower returns to secure properties.

The REITs are looking to build and small syndicates have emerged to develop. My company, Kennards Self Storage, will open five new properties in 2017. In addition, we have several expansions and redevelopments planned for existing locations.

There are opportunities for operators who appreciate the market and opportunity at a micro-level. However, it’s highly likely that some markets will see too much new development too quickly. It’s inevitable that an overabundance of new supply will emerge in some areas.

In addition, lenders in Australia have recently hardened their view on lending to many segments. Unproven new entrants to the storage sector are finding it more difficult to obtain financing. This might quell some of the oversupply risk.

Urbis is developing a new tracker that will maintain a live list of known incoming self-storage supply. This will improve the visibility of new projects and enable investors to more fully assess their prospects.

Sam Kennard is managing director of Kennards Self Storage. Founded in 1973, the company operates more than 85 facilities across Australia and New Zealand, with more than 575,000 square meters of lettable space and a market-asset value exceeding $1.4 billion. It remains a private, family-owned and -operated business. For more information, visit www.kss.com.au.

Barton Partners LLC has opened Big Tee’s Self-Storage in Godfrey, Ill. The property at 2735 W. Delmar is just off Illinois Route 3, near retail stores and restaurants. It’ll serve the communities of Alton, Bethalto, Brighton, Godfrey and Wood River, Ill., and the surrounding areas, according to Terry Barton, who co-owns the site with Linda Barton and is the managing partner for the business.

The facility features 24-hour access and a self-service kiosk. Security measures include more than 20 LED lights and video cameras. “The security of people’s personal belongings has been dominant in our thinking,” Terry Barton said.

New renters within a 3-mile radius can have free use of the company moving truck and driver for a limited time. Customers can also use online billpay. “This will be a friendly, family-owned facility, and we will be understanding. We will keep the facility clean and safe,” Terry Barton said.

Australia-based self-storage operator National Storage REIT (NSR) intends to raise $15 million through a share-purchase plan. The funds will be used to reduce debt and to provide flexibility in pursuing acquisition opportunities, according to a press release. The offer opened yesterday with shares priced at $1.50.

The purchase plan isn’t underwritten, and the total raised may be subject to a cap. The share price is the same as what institutional investors paid in a recent placement that raised $50 million, the source reported.

Last year, NSR acquired a three-property portfolio in the Brisbane, Queensland market from Elite Self Storage for $28 million.

NSR operates 125 self-storage facilities across Australia and New Zealand. It’s the first independent, internally managed and fully integrated owner and operator of self-storage centers to be listed on the Australian Securities Exchange.

Leon Capital Group, a Dallas-based real estate development and investment firm, has launched a capital platform for developers of class-A self-storage facilities. The company will provide “high-leverage,” nonrecourse construction financing up to 99 percent of the total project cost and will purchase the property upon completion, according to a press release.

“Our experience in the storage industry has shown us that traditional financial institutions are failing to meet the needs of storage developers,” said Jake Walker, managing director. “We are offering a one-stop-shop solution by financing nearly all of a project’s cost and providing a clearly defined exit.”

Leon Capital principals have led the acquisition, development, financing and management of more than 60 self-storage facilities across the United States, the release stated. It launched its self-storage investment platform and acquired its first facility in 2015 in a partnership with Move It Management LLC, a Dallas-based self-storage management company that also owns facilities. It opened its first ground-up storage project last year in Round Rock, Texas, near Austin and has completed two other storage developments in the Austin metro area. The company has eight projects under development that will comprise 790,000 rentable square feet of storage space.

“Because we’re a private lender and make loans with our own capital, we don’t have the regulatory constraints of banks or other financial institutions,” Walker said. “This allows us to be extremely nimble and hyper-focused on providing as smooth a transaction as possible.”

Leon Capital has more than $3 billion in completed real estate transactions and assets worldwide. Its portfolio includes acquisitions, land development and existing building infrastructure in the multi-family, mixed-use, office, retail and self-storage categories.

JEMB Realty Corp., a New York-based real estate firm, has purchased a church parking lot in Brooklyn, N.Y., on which it plans to build an eight-story self-storage facility. The company paid $15.2 million for the property at 72 Caton Place, which is near the 526-acre Prospect Park, according to the source.

JEMB filed permits with the city last week for the 109-foot-tall building, which will comprise 157,600 square feet of storage space. Designed by Frank G. Relf Architect, it’ll also include five loading docks and two parking spaces. If approved, the facility will open in 2020, the source reported.

The firm purchased the Cavalry Cathedral International parking lot after a proposal to build a $126 million, nine-story residential building fell through in 2015. Real estate developer Suzuki Capital LLC had originally partnered with the church to build a 100,000-square-foot rental building on the site that would be integrated with the two-story church next door at 58 Caton Place.

JEMB is a family-run real estate development, investment and management firm based in New York City. The company and its affiliate partners own and operate a real estate portfolio that includes more than 6.5 million square feet of space in Canada and the United States.

PTI Security Systems, a provider of access-control and security solutions for the self-storage industry, has added three sales-team members and hired a new tech-support team lead. The changes come hot on the heels of the company’s EasyCode mobile app, which was launched last year and redeveloped in the fall.

Scott Worden, Kristen Pacitti and Shana Thornton will serve as inside sales representatives, supporting the company’s rapid growth, according to a press release. Pacitti will support customers in the Midwest, while Thornton joins the Northeast regional team.

“With the early success of the EasyCode mobile app and our tremendous sales growth overall in 2017, we had to expand our sales team to meet the demand. That’s a good position to be in, and we’re excited to have Scott, Shana and Kristen join our team,” said CEO Franklin Young.

Worden previously spent four years as a salesperson at OpenTech Alliance Inc., a Phoenix-based provider of self-serve kiosks, call-center services and other technology for the self-storage industry. “I am excited about the opportunity to work at PTI and be part of a team that has such a clearly focused vision for the future,” he said. “I feel very fortunate to be joining such a respected company that prides itself on top-quality customer service, and that is bringing such innovative products and technology to our industry.”

PTI hired Diane Pencil to lead its tech-support team.

The company also announced it will release a new CORE cloud-software platform within the next six months.

PTI manufactures technology-enabled access-control and security solutions. Its product line includes access-control hardware and software, wired and wireless door alarms and mobile-access solutions. The company has installed more than 35,000 systems in 30-plus countries. It operates through two U.S. locations as well as distributors in Asia, Australia and Europe.